Hiring a new employee means sifting through countless applications, conducting interviews, and browsing resumes to find a candidate fit for the job. But could you be missing another important credential check during the hiring process?
Some employers pull a credit check on their candidates to ensure the right person gets the job. Keep reading to find out if this is something worth adding to your system.
What is a Credit Check?
Like most people, you’re probably familiar with the credit check as a step in the borrowing process. Legitimate lenders check a borrower’s credit history as part of their application.
What they see in this history can help them make an informed risk assessment about the borrower’s abilities.
A credit check isn’t the only way borrowers may qualify for personal loans with direct deposit options; however, it is one of the many ways lenders determine if a borrower will pay what they owe on time. A good history indicates a borrower hasn’t paid loans late in the past, so a lender can reasonably assume they’ll continue to pay promptly in the future.
Is an Employer Credit Check the Same Thing?
A credit check performed by an employer doesn’t provide the same access to an applicant’s credit history as one performed by a lender. After all, you aren’t extending a loan to a new hire, so you don’t need to know the nitty-gritty details of their past borrowing history.
An employer check will only share identifying information (for verification purposes), lists of debts, and account standings (including payment history and how much credit a borrower has available). It does not reveal a candidate’s three-digit credit score, specific account numbers, or data that violates equal employment laws (like age, marital status, or race).
Why Would You Check Your Employee’s Credit?
You aren’t offering a loan, but you might be entrusting your new employee with a lot of responsibility. Other employers rely on this check specifically for positions in cash management, accounting, proprietary information, or security.
A report that reveals a candidate pays their bills on time and manages their debt suggests they are an organized person you can trust with money. A candidate with a report marked by negative entries, on the other hand, may have misused money in the past. This can cast doubt on their ability to manage accounts and, in some cases, it can flag them as a fraud risk.
This check can also provide additional security clearance to ensure your candidate is who they say they are. Combined with a deeper background check, it confirms they don’t have a criminal record.
In some cases, employers use this as a tie-breaking decision when stuck between two nearly identical candidates.
Should You Perform a Check Right Away?
Before you pull someone’s credit history, you need to be aware of the rules surrounding this check. Under the Fair Credit Reporting Act (FCRA), you can’t perform a check without getting a candidate’s explicit permission. It’s the law.
You also have to consider how a credit check affects your paperwork. A candidate’s credit history is highly confidential, and you need to ensure your HR team knows how to handle this with sensitivity. You have to make sure that your team handles, stores, and disposes of this data correctly so that you don’t accidentally expose critical financial information.
At the end of the day, these added formalities may not be worth the information you glean from a check. It depends on the type of position you want to fill.